Private mortgage insurance (PMI) typically costs $30–$150 per month — $360–$1,800 per year — and protects the lender (not you) against default. You are required to pay it until your loan-to-value ratio (LTV) drops sufficiently. Removing PMI as soon as you qualify can save you thousands.
The Homeowners Protection Act of 1998 gives you specific legal rights to cancel PMI — your lender cannot ignore a valid request.
How PMI Works and When It Applies
PMI is required on conventional loans when your down payment is less than 20% of the home’s purchase price. It is calculated as a percentage of your loan amount.
| Down Payment | LTV at Purchase | PMI Required? | Typical Annual PMI Rate |
|---|---|---|---|
| Less than 20% | Above 80% | Yes | 0.2%–1.5% of loan |
| 20% or more | 80% or below | No | None |
Example: $350,000 loan × 0.8% PMI rate = $2,800/year ($233/month).
4 Ways to Remove PMI
Method 1: Automatic Cancellation (Federal Law)
Under the Homeowners Protection Act, your lender must automatically cancel PMI when:
- Your loan balance reaches 78% of the original purchase price (not current value)
- You are current on payments
This happens based on your scheduled amortization — no action required from you.
Timeline example: $300,000 home, 5% down ($285,000 loan). You reach 78% LTV ($234,000) at approximately year 9–10 for a 30-year mortgage.
Method 2: Request Cancellation at 80% LTV
You can request cancellation earlier — at 80% LTV — rather than waiting for automatic cancellation at 78%.
Requirements (typical):
- Written request to your loan servicer
- Loan balance at or below 80% of the original purchase price (not current value)
- Good payment history: no 30-day lates in past 12 months; no 60-day lates in past 24 months
- No subordinate liens (second mortgage, HELOC)
How to do it:
- Call your servicer and ask for the PMI cancellation request address
- Send a written request via certified mail
- The servicer has 30 days to respond
- May require evidence that the home’s value has not declined
Method 3: New Appraisal (Appreciate Your Way Out)
If home values have risen since purchase, you may have reached 80% (or 75%) LTV based on current value, even without much principal paydown.
Servicer requirements typically:
- Owned the home for at least 2 years → LTV must reach 75% on current appraisal
- Owned for at least 5 years → LTV must reach 80% on current appraisal
- Good payment history
Cost: Appraisal: $300–$600. If it saves $150/month in PMI, it pays back in 2–4 months.
Method 4: Refinance
Refinance into a new loan where the balance is below 80% of the new appraised value.
Best when: Home value has risen significantly AND interest rates are similar to or lower than your current rate.
Caveat: Refinancing costs 2–6% of the loan balance. On a $280,000 loan, that is $5,600–$16,800 in closing costs. Make sure the PMI savings plus any rate improvement justify the cost.
Worked Example: Request Cancellation vs. Wait
Emily bought her home for $400,000 with 5% down ($380,000 loan, 30 years, 6.5%). Her PMI is $95/month.
| Scenario | When PMI Ends | Total PMI Paid |
|---|---|---|
| Wait for automatic (78% of $400k = $312,000) | Month ~116 (year 10) | $11,020 |
| Request at 80% ($320,000) | Month ~83 (year 7) | $7,885 |
| Appraisal shows 75% LTV already (value rose to $460k) | Now | $0 going forward |
By requesting cancellation at 80% instead of waiting, Emily saves $3,135.
PMI vs. MIP (FHA Loans)
FHA loans require mortgage insurance premiums (MIP) — not PMI. MIP has different cancellation rules:
| FHA Loan Term / Down Payment | MIP Duration |
|---|---|
| 30-year, less than 10% down | Life of loan (cannot be canceled) |
| 30-year, 10%+ down | 11 years |
| 15-year, any down payment | Canceled at 78% LTV |
If you have an FHA loan with permanent MIP, refinancing to a conventional loan once you have 20% equity is the only way to eliminate mortgage insurance.
Steps to Remove PMI This Month
- Check your current loan balance (on your statement or servicer’s website)
- Identify your original purchase price
- Calculate LTV: balance ÷ original price
- If LTV ≤ 80%: send a written cancellation request to your servicer
- If LTV is 80–85% and home has appreciated: order an appraisal
- If LTV is well above 80% still: make extra principal payments to accelerate
See the Homeownership Guide for how PMI fits into the full cost of homeownership over time.
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